The European Council will meet at a key summit in Brussels today and will face two days of intense negotiations over British relations with the Euro bloc. The UK Prime Minister’s demand for key reforms in return for Britain’s continued membership has exposed a rift between member nations. A failure to get a deal this week will heighten the risk of the UK becoming the first nation to leave the European Union (EU) after an in-or-out referendum that could come as early as June. 

Across the Atlantic, it is going to be another busy day for economic news which will include a regional manufacturing survey and a weekly update on jobless claims. Market participants will also keep a tab on the release of the minutes from the European Central Bank's (ECB) monetary policy meeting held in January. 

Pound Sterling – UK Markets

The Pound is trading higher against the US Dollar this morning, amid no UK economic announcements scheduled for the day. Instead, market focus will be on any news relating to Britain’s European Union membership as the UK Prime Minister, David Cameron, prepares for a two day crunch summit in Brussels starting later today. At the summit, he will attempt to persuade all EU nations to back his reforms proposal and finalise a deal before the end of this week to put the outcome to an in/ out referendum on UK’s continued membership in June. As a result, the European Leaders summit later today could trigger significant volatility in trading in Sterling against its key peers. 

Moving ahead, the last set of UK economic releases for the week such as the nation’s retail sales and government borrowing figures are scheduled for release tomorrow. It is expected that the retail sales numbers will show some improvement in January as a further drop in fuel prices could support spending on other goods. The borrowing figures are anticipated to show a surplus in UK accounts. 

US Dollar – US Markets

The US Dollar traded higher against most of the major currencies yesterday after data on industrial activity in the US revealed a sharp rebound in output for January, following several months of contraction. Also, the Federal Reserve’s (Fed) report showed a strong recovery in manufacturing in January after contracting in the previous two months. The numbers brought in a glimmer of hope for the embattled US manufacturing sector. Looking ahead, market participants will eye today’s update from the Philly Fed for more hints that a manufacturing recovery carried over into February. Additionally, investors will also keep a tab on today’s update on jobless claims for signs that the labour market has continued to expand. 

The minutes from the Federal Open Market Committee (FOMC) meeting held in January indicated that the central bank left the benchmark interest rate unchanged, as the policymakers were concerned about turbulence in the global financial markets and weak consumer inflation. The minutes hinted that the Fed is likely to hold raising rates until the global economy returns to an active pace of growth.

Euro – European Markets

The Euro is currently trading moderately flat against the US Dollar, following a strong start earlier in the day. The economic calendar for this week has so far been quite light in Europe. Earlier today, data showed that annual consumer price inflation in France held steady at the start of the year. On a monthly basis, consumer prices slid more than expected for January due to the seasonal decline in prices of manufactured goods and the prices of services related to tourism. In the session ahead, investor focus will be on the minutes of the ECB’s recent monetary policy meeting held in January in which the central bank left its benchmark interest rate unchanged. The ECB President, Mario Draghi, earlier this week had given a strong indication of further expansion of stimulus measures in the March meeting. Today’s ECB accounts might offer more clues on the QE extension.

The common currency drifted lower against the greenback yesterday, after the minutes from the FOMC January meeting hinted gradual tightening this year amid uncertainty in the global financial markets.

Other Currencies – Highlights

The Australian Dollar nudged lower against the US Dollar today after the release of disappointing jobs data in Australia. Data published early this morning showed that the unemployment rate unexpectedly ticked up in January, rising to its highest level since September 2015 as employers cut back on full-time labour. The slump in fulltime employment figures reflected disappearing stimulus from a record low interest rate and a weaker national currency. Meanwhile, the number of part-time jobs increased in January. Additionally, the number of people either employed or actively looking for work remained steady at an all time high and in line with market expectations. Today’s figures probably reflect that jobs growth in Australia lost momentum after a period of unbelievable strength late last year, suggesting that the Reserve Bank of Australia will be forced to cut interest rates again this year. 

Yesterday, the Aussie Dollar had reached a one-week high against the greenback after a strong recovery in oil prices underpinned the commodity currency.